China WFOE: Advantages & Benefits

Some of the Main Advantages of a CHina WFOE

Advantages of a China WFOE

These are the detailed advantages of establishing a WFOE and include, but are not limited to:

(I) Advantages of a Wholly Owned Foreign Enterprise

Independence and freedom to implement the worldwide strategies of its parent company without having to consider the involvement of a Chinese partner.

Ability to formally carry out business rather than just function as a representative office and being able to issue invoices to customers in RMB and receive revenues in RMB.

Capability of converting RMB profits to US dollars for remittance to its parent company outside of China.

Protection of intellectual know-how and technology.

No requirement for Import / Export License for its own products.

Full control of human resources.

Greater efficiency in operations, management and future development.

Investor does not have to be established for more than 2 years, compared to a Representative Office’s parent company that is required to have been established for over 2 years.

Shareholder liability limited to sum of original investment.

In a sentence:

The advantage of having your own Company in China that you control completely, means you can dove-tail it to meet the requirements of your existing and proven operational business model.

China WFOE Business Scope

The Business Scope is narrowly defined and interpreted for all businesses in China; a WFOE may only legally conduct business within the stated Business Scope as it appears on its Business License.

(I) Business Scope - Advantages & Restrictions

One of the most important issues in WFOE application is business scope. Business scope needs to be defined and the WFOE can only conduct business within its approved business scope, which ultimately appears on the business License. Any amendments to the business scope require further application and approval. Inevitably, there is a negotiation with the approval authorities to approve as broad a business scope as is permitted. Generally business scope includes investment consulting, international economic consulting, trade information consulting, marketing and promotion consulting, corporate management consulting, technology consulting, manufacturing, etc. With China’s entry into WTO, more and more business is open to WFOE especially in Trading, Wholesale and Retail business.

In the application documents, the business scope is written as a list of business activities that the WFOE will conduct in China, and the first business activity will define the overall nature of the WFOE for classification purposes. The classification will further define the minimum required capital, type of invoices, type of applicable taxes, etc. As one example, for a previous WFOE registration, the company’s business scope was written as "retail of cosmetic products, training on cosmetic products, after-sales services". The nature of this WFOE was therefore defined by the Chinese authorities as a "retail-trading WFOE", thus the required registered capital was RMB 300,000, and it was able to receive the Value-Added-Tax invoices that are essential to a trading company in China.

Because the scope of business is crucially important in the WFOE business registration application, We always meet with the appropriate officials to ensure that every business activity that is listed on the registration application is an approved business activity and that every business activity is designed as broadly as allowable so that clients can be more flexible in what activities they are allowed to conduct. We will not submit an application until we are assured that the application information follows the pertinent rules and regulations and that it will allow our clients to achieve the maximum benefits of running their businesses in China.

(II) So basically, what you are saying is that a WFOE is just like having my own Company on the China Mainland.

Yes, that is correct.

Subject to Chinese Law, this is entirely your own Company and you can do whatever you like within the terms & articles of incorporation. Remember, if you plan to sell your products in China, then the WFOE must be in the form of a FICE.